August 8, 1990
The pace of economic activity in the Third District appeared to be easing somewhat in July, according to reports from business contacts. Manufacturers reported a slowdown for the month. Retailers generally indicated that sales in July were running below the rate that had prevailed in the first half of the year, although they thought the decline was largely seasonal, and auto sales were off from last year's pace. Bankers reported slowing overall loan growth for the month, with some gains in consumer lending while other credit categories were nearly flat.
Looking ahead, the consensus of expectations is that economic conditions will remain level. Overall, manufacturers anticipate just steady activity over the next six months. Retailers expect slow sales during the rest of the summer but they look for a slight pickup in the fall. Bankers expect consumer lending to continue growing modestly, but they anticipate no significant expansion of business lending unless overall economic activity accelerates, and they plan continued restraint in real estate lending.
Manufacturing
Third District manufacturing activity slipped overall in July,
according to firms contacted for this report. While just over half
reported steady business, companies reporting declining activity
outnumbered those posting gains by nearly two-to-one. Slower
business characterized nearly all the manufacturing industries in
the district.
Overall, although area firms were stepping up shipments in July, other measures of activity indicated that they were operating at less than full capacity. Local companies were working down order backlogs even though they were receiving new orders at a virtually steady pace; and, although most of the firms contacted were maintaining employment levels, one-quarter were reducing payrolls and nearly one-third were cutting working hours. Decreases in delivery times were generally reported, another sign of slackness in the manufacturing sector.
Looking to the future, forecasts are varied but the balance of opinion among Third District manufacturers is that business will stabilize at the current level over the next six months. Managers at area plants are nearly equally divided among those predicting improvement, those anticipating continued decline, and those who expect steady activity between now and January of next year. On balance, area manufacturers forecast a constant rate of orders and shipments through the beginning of next year, and they expect a further decline in backlogs and shorter delivery times. Consistent with this scenario of slack demand, area firms plan further reductions in payrolls and working hours this year.
Retail
Third District retailers generally indicated that sales for the year
through June ran around even with the year-ago period in real terms,
which was in line with their expectations. Most of the merchants
contacted in late July said sales for the month had softened
somewhat, but they considered the falloff to be largely seasonal.
Store executives generally indicated that inventories were
appropriate for the current sales pace. In discussing the overall
inventory situation, some store executives noted that factors were
continuing to exercise caution in extending credit to suppliers of
stores that were not shoving clearly healthy sales and profit
trends.
In their outlook for the rest of the year, Third District retailers see slow sales through the rest of the summer and a pickup in the fall. Some mentioned that they are formulating fairly aggressive advertising and promotion campaigns for the second half. While most of the merchants contacted for this report expressed guarded optimism for their own stores, several said they did not expect overall retail performance to improve much for the balance of 1990 or 1991.
Third District auto dealers indicate that their results recently have been running in line with the sales rate nationwide, but with a good deal of variation week-to-week. Unit sales are off from last year's pace so far, and dealers say unit sales for the entire year could be as much as 10 percent below 1989's but they expect an improvement in dollar sales and profits.
Retail
Third District bankers described total lending as growing very
slowly in recent weeks. Most Third District banks are refraining
from new commitments for commercial real estate lending while
permitting drawdowns for borrowers who had made credit arrangements
earlier. Rank lending officers report little or no growth in other
business loans outstanding, and they attribute the weakness in this
category of lending about equally to declining loan demand and
tightened credit standards. Consumer lending is growing modestly at
area banks, with increases in credit card balances and home equity
credit outstanding. Auto loans, however, are described as flat.
Bankers in the Third District generally expect loan growth to remain weak in the months ahead. Several noted that commercial real estate credit outstanding will probably flatten out or decline because virtually no new commitments are being made and existing credit lines are close to being fully utilized. Bankers do not expect more than minor gains in other business lending, despite the recent easing in short-term interest rates, unless overall economic growth accelerates. Consumer lending is expected to continue growing slowly.